Building A Lazy Portfolio: How To Invest For Retirement Without Too Much Effort4 min read
Want to invest without spending hours watching the stock market? This may be the perfect choice for you.
You’ve probably heard it a thousand times by now—if you’re looking to enjoy a comfortable retirement, working at your 9–5 job simply isn’t going to cut it nowadays. So you may decide to grow your nest egg by investing your money.
Now comes the next question: what to invest in? There are simply too many different choices, such as property, shares, bonds, gold, oil, and even luxury goods. Not to mention all the new-fangled stuff like cryptocurrencies and Non-fungible Tokens (NFTs). Think already also pengsan right? Luckily, there’s a solution to that. If you can’t decide, why not just buy a bit of everything?
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Buy everything? Sure or not?
With ETFs, or Exchange Traded Funds, you can buy the shares of thousands of companies across the world at once. Simply put, ETFs are funds that track indexes of specific markets:
Straits Times Index (STI): Top 30 companies in Singapore
S&P 500: Top 500 companies in USA
You get the general idea. So buying a single unit of an ETF that tracks the STI will give you broad exposure to the performance of the top 30 companies in Singapore. Easy, right? It gets even better—you can use these ETFs to invest in a Lazy Portfolio that allows you to grow your money without doing too much. Just put your money in and watch it grow. That’s pretty much it!
Lazy Portfolio? What kind of name is that?
Hey, not I invent one hor. It’s inspired by the investing philosophy of John Bogle, a famous American investor. With this investing strategy, you simply buy 3 different kinds of ETFs:
- Local Shares ETF
- Global Shares ETF
- Local Bond ETF
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What this does is help you diversify your risk, as you’re buying into thousands of companies across the world. That means that even if one company in the fund does not do well, there are many others that can help pull up the overall performance of your portfolio.
ETFs also have very low fees, as they simply track an index and are not managed by a human manager. You would typically expect to pay around 0.2% per ETF as opposed to a similar mutual fund which would charge you anything between 0.7% to 1.4%.
The main disadvantage of a Lazy Portfolio is that it merely follows the market performance instead of beating it, which a human fund manager would try to do by actively trading in the stock market. This also means that it will take time to grow your money, with a typical investment horizon of 10-15 years.
Like buay pai hor. So why these 3 particular ETFs?
Each ETF has a role to play in this portfolio. For the Local Shares ETF, we will be tracking Singapore’s only national index, the STI. This will form the core of your investment as it is denominated in SGD, which means your money can grow without being exposed to currency exchange risk.
However, the STI has only had an annual average return of 3-4% in recent years, which is good but not great, only slightly beating inflation rates. This leads us to the Global Shares ETF, to help us take advantage of growing international economies. For instance, the S&P500 tracking US companies has returned upwards of 10% annually. However, as you have to buy these funds in their local currency (i.e. exchanging SGD for USD), the performance of your portfolio might be affected if the value of USD drops significantly.
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Finally, the Local Bond ETF offers you some stability in your portfolio. Bonds are essentially loans provided by investors (i.e. you) to companies and governments, who are committed to paying back these debts. These funds do not fluctuate as wildly as stocks during market dips and rises, so they are ideal for when you are nearing retirement and need to sell off your assets to fund your retirement expenses.
As for the allocation of the 3 funds, it depends on your age and investment horizon. If you’re younger and can stomach higher risk, you may want to have a higher percentage in global shares to take advantage of strong international growth. If you’re almost about to retire, consider moving more of your money into bonds to protect the value of your portfolio.
Consider passive investing with a Lazy Portfolio
So there you have it – the Lazy Portfolio for those who are keen to invest, but don’t want to spend too much time researching the market and actively picking stocks. As always, do your due diligence before making any investment decisions. If in doubt, you can always seek the advice of a certified financial professional. Time to put your money to work!
The eldest of the Tng family. Smart, buff, responsible, and very single. Bobby works in IT in the civil service and is a loyal son, brother and friend. Like his father, he is always brewing with ideas and his greatest wish is to be an entrepreneur one day.